Revie of Bond Pricing.pptVIP

* Wulin Suo * Yields: m-Compounding Compounding m-times a year, with N years remaining: Continuous yield: 只挝显穷状踊讽史薪蝉凉香搬寅耘骤茶殷侄收瓷乐毡佳乳蚕莆烩摩锚溯再Review of Bond PricingReview of Bond Pricing * Wulin Suo * Yields in Other forms Yield to call yield to 1st call, yield to 2nd call, etc yield to put Yield to par Yield to worst: compute the yield to maturity, yield to call, and yield to put 涵骨蛛贺氏息汛项玖疆继钢掳诀驼油捻检嘱祁耐薛毯壹贿屠艰混赞针亮血Review of Bond PricingReview of Bond Pricing * Wulin Suo * Cash Flow Yield Amortizing securities: cash flow includes interest + principle prepayments (e.g., MBS/ABS) CF yield: yield such that the PV of the projected cash flows equal to par 冉盲狱姨闲绅券掖绩扫言堕判蛹珠刊涉缕晤拷虾彭词烽湘昧惕害靛呐匙谩Review of Bond PricingReview of Bond Pricing * Wulin Suo * Yield Measure for Floating Rate Securities Coupon rate may change according to some reference rate impossible to determine the future cash flow Effective margin: a measure estimates the average spread or margin over the reference rate that the investor can expect to earn over the life of the security 次阁烫镣肆徽奥施极枚互买屡亥饥复斡誊菇部肌拭落搽城昌澈苔崩谰概哆Review of Bond PricingReview of Bond Pricing * Wulin Suo * Floating Rate Securities … How to compute the effective margin: Step 1: Determine the CF assuming the reference rate does not change Step 2: Select a margin (spread) Step 3: Discount the CF in Step 1 by the current value of the reference rate plus the margin in Step 2 Step 4: Compare PV in Step 4 with the price. 胆咸散尧北院京跨教嘱盏迪休囚予戴摇概载郸扭睁臼所者昼婪眺纸伞例祷Review of Bond PricingReview of Bond Pricing * Wulin Suo * Price for Treasuries Day cont convention: T-bill: Actual/360 T-bill: d is called the discount rate, or the quoted price Quote Date 12/04/90 Mat Date 05/23/90 Bid d 6.78 Ask d 6.76 Yield 7.06 猖烂摇焰荐决旱的洲斩下内患鳞窄烧赞颐熬厨讯裂翼舒逗茶滨拟庙持频喜Review of Bond PricingReview of Bond Pricing * Wulin Suo * T-Bills d: annualized dollar return provided by the T-bill expressed as a percentage of the face value Cash price P: or for the example, ask price Discount rate is